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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Xcel Energy Inc (NASD: XEL)? Today, we examine the outcome of a five year investment into the stock back in 2015.

Start date: 02/09/2015


End date: 02/06/2020
Start price/share: $35.34
End price/share: $69.30
Starting shares: 282.97
Ending shares: 332.51
Dividends reinvested/share: $7.22
Total return: 130.43%
Average annual return: 18.19%
Starting investment: $10,000.00
Ending investment: $23,041.25

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.19%. This would have turned a $10K investment made 5 years ago into $23,041.25 today (as of 02/06/2020). On a total return basis, that’s a result of 130.43% (something to think about: how might XEL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Xcel Energy Inc paid investors a total of $7.22/share in dividends over the 5 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).

Based upon the most recent annualized dividend rate of 1.62/share, we calculate that XEL has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.62 against the original $35.34/share purchase price. This works out to a yield on cost of 6.62%.

More investment wisdom to ponder:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith